We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the...

We consider the optimal allocation of decision rights over noncontractible specific investments. Risk-averse business unit managers each engage in general (stand-alone) operations and invest in joint projects that benefit their own and other divisions. Which of the managers should have the...

We study how interest alignment between CEOs and corporate boards influences investment efficiency and identify a novel force behind the benefit of misaligned preferences. Our model entails a CEO who encounters a project, gathers investment-relevant information, and decides whether or not to...

In their role as initiators of new business projects, CEOs have an advantage over access to and control over project-related information. This exacerbates pre-existing agency frictions and may lead to investment inefficiencies. To counteract this challenge, incentive compensation for corporate...

We study how the precision of managers’ private post-contract predecision information affects the pay-performance relation. Taking into account that the information environment in decentralized firms is often endogenously determined (e.g., by investment in internal accounting systems, hiring...

The aim of general purpose financial reporting is to provide information that is useful to investors, lenders, and other creditors. With this goal, regulators have tended to mandate increased disclosure. We show that increased mandatory disclosure can weaken a firm's incentive to acquire and...

The aim of general purpose financial reporting is to provide information that is useful to investors, lenders, and other creditors. With this goal, regulators have tended to mandate increased disclosure. We show that increased mandatory disclosure can weaken a firm's incentive to acquire and...

This article develops a Bayesian persuasion model examining a manager's incentives to gather information when the manager can disseminate this information selectively to interested parties (“users”) and when the objectives of the manager and the users are not perfectly aligned. The model...

We study how a firm owner motivates a manager to create value by optimally designing an information system and a compensation contract based on a manipulable performance measure. In equilibrium, the firm either implements a perfect or an uninformative system. The information system and the...

We study how the potential for discretionary disclosure affects the way a firm designs its reporting system. In our model, the firm's primary but nonexclusive concern is to induce beliefs that exceed a threshold. Such thresholds arise in numerous contexts, including investing decisions,...